According to the United States Federal Trade Commission (FTC), pyramid schemes and multi-level marketing rip-offs are two of the most widely reported types of consumer fraud in America today. But what are these scams and how can we protect ourselves from falling victim to them?
Pyramid schemes are illegal business models in which participants earn money for recruiting other participants - no goods are produced and no services are rendered. Pyramid schemes are often recognizable by their one-time start-up costs for new participants and their quickly unsustainable end. These scams have been around for many years and appear in a wide range of forms and under a number of euphemisms. However, one commonality that all pyramid schemes share is that only those at the top of the pyramid profit, while large numbers of participants simply lose their money to others.
Multi-level marketing (MLM) businesses share many aspects of pyramid schemes, although some MLM businesses are legal though highly controversial. Unlike pyramid schemes, multi-level marketing models often involve a product or service - but many participants often rely heavily on recruiting new members or selling the company's products to other recruits. In addition, those joining a MLM business are often required to pay hundreds or thousands of dollars in start-up costs and are forced to buy and use the company's products. Multi-level marketing schemes often call themselves "home business franchises" or "affiliate marketers" in order to avoid the stigma attached to multi-level marketing companies. While some MLM business models are considered legal, others are no more than disguised pyramid schemes or other forms of fraud. A number of multi-level marketing companies have been faced with consumer fraud lawsuits.
How can you tell if you are in danger of being the victim of a pyramid scheme or illegal multi-level marketing scam?
If you have been taken advantage of by a company running a fraudulent marketing scheme, talk to an Iowa consumer fraud lawyer today.